LAIDLAW ENV. SERV. v. Aetna Cas. & Sur.

• Decision Date: 22 November 1999
• Docket Number: No. 3078.,3078.
• Court: South Carolina Court of Appeals
• Parties: LAIDLAW ENVIRONMENTAL SERVICES (TOC), INC., a subsidiary of Laidlaw Environmental Services, Inc., Appellant, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, Respondent.

338 S.C. 43

524 S.E.2d 847

LAIDLAW ENVIRONMENTAL SERVICES (TOC), INC., a subsidiary of Laidlaw Environmental Services, Inc., Appellant, v. AETNA CASUALTY & SURETY COMPANY OF ILLINOIS, Respondent.

No. 3078.

Court of Appeals of South Carolina.

Heard October 7, 1999.

Decided November 22, 1999.

Kenneth W. Ebener, of Kirkland, Wilson, Moore, Taylor & O'Day, of West Columbia; and Wilmot B. Irvin, of Law Offices of Wilmot B. Irvin, of Columbia, for appellant.

John E. Johnson and Robert D. Moseley, Jr., both of Leatherwood, Walker, Todd & Mann, of Greenville, for respondent. HEARN, Judge:

In this insurance case, Laidlaw Environmental Services (TOC), Inc. (Laidlaw) appeals the circuit judge's interpretation of a commercial general liability insurance policy issued by Aetna Casualty & Surety Company of Illinois (Aetna). We affirm.

FACTS

Laidlaw contracted with Radco Process Equipment (Radco) to construct a "baghouse" ¹ for Laidlaw's hazardous waste incineration system. Radco abandoned the project and Laidlaw hired a replacement contractor to complete construction. When placed into operation, the baghouse system leaked.

Laidlaw sued Radco for breach of contract, breach of UCC express warranty, breach of UCC implied warranty of merchantability, breach of UCC implied warranty of fitness for a particular purpose, negligence or recklessness in design and installation of the baghouse, and negligent misrepresentation.

On April 22, 1994, Radco's insurance carrier, Aetna, sent Radco a letter stating that it would provide coverage for and a defense to Laidlaw's claims under a reservation of rights, pending further investigation of the claims.

On June 1, 1994, Aetna sent Radco a letter stating that it would provide coverage for certain, but not all, of Laidlaw's claims, once again under a reservation of rights depending on what information arose during the discovery process.

The policy Aetna issued to Radco contained an endorsement stating "[t]his insurance does not apply to `bodily injury' or `property damage' included within the `products—completed operations hazard.'" The policy defined products—completed operations hazard as follows:

11.a. "Products—completed operations hazard" includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:

1. Products that are still in your physical possession; or

2. Work that has not yet been completed or abandoned.

b. "Your work" will be deemed completed at the earliest of the following times:

(1) When all of the work called for in your contract has been completed.

(2) When all of the work to be done at the site has been completed if your contract calls for work at more than one site.

(3) When that part of the work done at a job site has been put into its intended use by any person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

On October 19, 1994, Aetna sent Radco a letter stating that Laidlaw's claims fell within products—completed operations coverage which Radco did not purchase, and therefore Aetna did not feel there was any coverage available, nor any obligation to defend under Radco's policy.

On September 30, 1995, Radco and Laidlaw settled and, as part of the settlement, Radco assigned its rights against Aetna to Laidlaw.

On August 5, 1996, Laidlaw sued Aetna for breach of contract and bad faith refusal to pay, asserting Aetna wrongfully denied Radco coverage and withdrew its defense of Radco without reasonable cause. Laidlaw subsequently amended its complaint, asserting as a third cause of action that Aetna waived its right to deny coverage by first agreeing to provide coverage.

Aetna denied the allegations contending the policy excluded coverage for the damages Laidlaw sought. Aetna's answer attached an affidavit by R. Victor Bell, Radco's principal, which stated Radco discussed products—completed operations coverage with Aetna and specifically rejected such coverage. Both Aetna and Laidlaw filed cross-motions for summary judgment. The circuit judge granted Aetna summary judgment. Laidlaw appeals, contending the circuit judge erred in (1) finding Laidlaw's damages claims fell within the policy's products— completed operations hazard exclusion, (2) finding the policy failed to provide coverage for business risks and faulty workmanship, (3) dismissing Laidlaw's bad faith claims, (4) failing to find exclusion `m' entitled Laidlaw to summary judgment, and (5) failing to find Aetna waived its right to deny Radco coverage.

STANDARD OF REVIEW

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c), SCRCP. In ruling on a motion for summary judgment, the evidence and the inferences which can be drawn therefrom should be viewed in the light most favorable to the non-moving party. Caf'e Assocs., Ltd. v. Gerngross, 305 S.C. 6, 9, 406 S.E.2d 162, 164 (1991).

DISCUSSION

I. Products—completed operations exclusion

It is undisputed that this policy specifically excludes products—completed operations hazard coverage. Therefore, if Laidlaw's claims fall within the policy's products—completed operations exclusion, Aetna properly denied coverage under the policy. Accordingly, Laidlaw asserts its claims fell within an exception to the policy's products—completed operations exclusion and contends the circuit judge erred in finding the policy's endorsement excluding such coverage precludes Laidlaw's claims.

"[R]ules of construction require clauses of exclusion to be narrowly interpreted, and clauses of inclusion to be broadly construed. This rule of construction inures to the benefit of the insured." McPherson v. Michigan Mut. Ins. Co., 310 S.C. 316, 319, 426 S.E.2d 770, 771 (1993). Where the words of an insurance policy are capable of two reasonable interpretations, we will adopt the construction most favorable to the insured. Forner v. Butler, 319 S.C. 275, 277, 460 S.E.2d 425, 427 (Ct.App.1995) (citing Greenville County v. Insurance Reserve Fund, 313 S.C. 546, 443 S.E.2d 552 (1994)). "Furthermore, exclusions in an insurance policy are to be construed most strongly against the insurer." Forner, 319 S.C. at 277,460 S.E.2d at 427.

However, we subject insurance contracts to the same rules of interpretation governing other types of contracts. Unisun Ins. Co. v. Schmidt, 331 S.C. 437, 440, 503 S.E.2d 211, 213 (Ct.App., 1998), cert. granted, (April 22, 1999). "The foremost rule in interpreting an insurance contract is to give effect to the intent of the parties as shown by the language of the contract itself. When the contract language is clear and unambiguous, the language alone determines the contract's force, and terms must be construed to give effect to their `plain, ordinary, and popular meaning.'" Dorman v. Allstate Ins. Co., 332 S.C. 176, 178, 504 S.E.2d 127, 129 (Ct.App.1998). "Ambiguity may not be created in an insurance policy by singling out a sentence or a clause ... [and] courts may not torture the ordinary meaning of language to extend coverage expressly excluded by the terms of a policy." Falkosky v. Allstate Ins. Co., 311 S.C. 369, 371, 429 S.E.2d 194, 196 (Ct.App.), modified, 312 S.C. 210, 439 S.E.2d 836 (1993) (internal citations omitted).

Both parties agree Radco abandoned work on Laidlaw's baghouse system. Both parties also agree that another contractor finished the work and the baghouse was then put into operation. It is then that the baghouse system leaked, causing Laidlaw's damages. Thus, it is clear that the work had been both completed, albeit not by Radco, and abandoned before the accident occurred. Even though Laidlaw concedes that Radco did not purchase products—completed operations coverage, it contends Radco's abandonment invoked the second exception to the products—completed operations exclusion, thus bringing its claims within the policy's coverage. We disagree.

By its plain meaning, products—completed operations coverage applies when the insured contractor completes work on a project. Accordingly, "[w]ork that has not yet been completed" is still in progress and not covered under the products—completed operations coverage. Similarly, work that has not been abandoned is still in progress and not covered under products—completed operations coverage. Conversely, when an insured abandons work on a project the insured has effectively "completed" its work for that project, even if the project remains unfinished, thus invoking products—completed operations coverage. Consequently, when read in context, this policy excludes products—completed operations coverage except when the insured's work is still in progress because it has not been completed or not been abandoned. Stated differently, this exclusion applies when work has been completed or abandoned. Therefore, Radco's abandonment invoked the products—completed operation exclusion and precludes Laidlaw's claims. See Allan E. Korpela, Annotation, Construction and Application of Clause Excluding from Coverage of Liability Policy "Completed Operations Hazards" 58 A.L.R.3d 12 (1974) (noting products—completed operations coverage generally covers injury or damages after the insured's operations as to a particular activity have been completed or abandoned).

Moreover, the policy deems work "complete" when "that part of the work done at a job site has been put into its intended use by any person or organization other than another contractor or subcontractor working on the same project." It is undisputed that after Radco abandoned the project, another contractor finished the baghouse, which Laidlaw...